Annual meetings of shareholders of public companies often feature: attendance by a modest number of shareholders, and by the company’s external legal counsel, auditor, investor-relations firm, service providers and other assorted hangers-on; the casting of virtually all votes prior to the meeting by way of proxy; perfunctory reviews of the past fiscal year by the Chief Executive Officer and Chief Financial Officer; and one or two desultory questions from shareholders. In short, annual meetings haven’t evolved in the last 30 years. Excitement arises only if activist shareholders storm the meeting or if unionized employees speak, particularly if a strike is threatened or in progress.
It’s time for public companies to bring their annual meetings into the digital age and to use them as an effective means of communicating with a large number of shareholders and with the investment community in general. A revamped annual meeting may even lead to reduced costs when compared to the traditional model of renting a conference room at a hotel and providing refreshments, as modest as they may be, for shareholders. Canadian corporate law provides a framework which can be used to increase shareholder access to annual meetings and to maximize the impact of annual meetings.
Applying the Canada Business Corporations Act (CBCA) as a typical Canadian corporate statute, the following rules apply to annual shareholders’ meetings, all as set out in section 132 of the CBCA:
- The annual meeting must be held in Canada, unless the articles of the corporation specify a place outside Canada where the meeting can be held.
- Unless the by-laws of the corporation otherwise provide, any person entitled to attend an annual meeting may participate by means of a “telephonic, electronic or other communication facility” that permits all participants to communicate adequately with each other during the meeting, if the corporation makes such communication facility available. In short, shareholders can participate in an annual meeting by way of telephone conference call or videoconference provided by the corporation (similar to a meeting of a Board of Directors), although an annual meeting with telephone or video participation may prove to be unwieldy when it comes to voting. Shareholders participating by such means are deemed to be present at the meeting.
- If the by-laws of the corporation so provide, a corporation may hold an annual meeting entirely by means of a “telephonic, electronic or other communication facility” that permits all participants to communicate adequately with each other during the meeting. In short, since amendments enacted in 2001, the CBCA allows a corporation to hold a “virtual”, online annual meeting.
Certain Canadian provincial corporate statutes, including the Business Corporations Act (Ontario), the Business Corporations Act (Québec) and the Business Corporations Act (British Columbia), contain similar provisions.
The CBCA provides a framework for a traditional meeting, that is, a “physical meeting” attended by shareholders, and for a “virtual meeting”, in which all shareholders participate entirely by electronic means. As noted above, a traditional physical meeting does little to maximize shareholder participation. On the other hand, a virtual meeting, for example, one available only online, presents technical issues, particularly with respect to registration of shareholders participating in the meeting and shareholders speaking and voting during the meeting, and will result in additional costs to the corporation. Therefore, in order to maximize shareholder participation and the impact of an annual meeting in the investment community, without incurring undue costs or technical challenges, we recommend a “hybrid” annual meeting, that is, a physical annual meeting with livestreaming of the proceedings and interaction with participants during the question period.
In a hybrid annual meeting, a scaled-down physical meeting, or traditional physical meeting, can be held in Canada with the proceedings viewed by shareholders and others by way of webcast. The practice of webcasting annual meetings is beginning to gain traction in Canada, including by major corporations such as BCE Inc. and Bank of Montreal, and appears to be well received by shareholders.
Hybrid Meeting Process
Here is the process for a hybrid annual meeting:
- A physical meeting will be held at a location in Canada, such as the traditional hotel conference room, or any one of Fasken’s Canadian offices.
- At minimum, the following people must be present at the physical meeting: for quorum purposes, one or more proxy holders, depending on the specific requirements of the corporation’s by-laws; the chairperson of the meeting (who can be one of the proxyholders); the secretary of the meeting; and a scrutineer (typically from the corporation’s transfer agent and registrar).
- Any registered shareholder or other duly-appointed proxyholder also has the right to attend the annual meeting in person.
- Senior management (e.g., CEO and CFO) and directors of the corporation can participate in the meeting either in person or remotely by way of video conference. If senior management or directors are at a remote location and the corporation has a link which allows them to communicate adequately with the participants present at the physical meeting (and vice versa), the individuals participating in this way will be deemed to be present at the annual meeting.
- The meeting will be broadcast live by way of a webcasting platform (as discussed below). Shareholders who view the webcast will not be considered as official participants at the meeting (e.g., for quorum purposes) because they will not be able to communicate with other participants or to cast votes.
- Shareholders present in person at the meeting or viewing the meeting by way of webcast will be invited to participate in the question period which typically follows the official business of an annual meeting. Those viewing the webcast will be asked to submit their questions in writing through the webcasting platform. The chairman or secretary of the meeting, or another person designated by the corporation, can screen the questions to the extent necessary (e.g., to ensure that they relate to the business of the meeting), prior to reading the questions to the meeting and asking management to respond.
A public corporation has to give consideration as to who will be allowed to view the webcast of its hybrid annual meeting. It should be kept in mind that shareholders’ meetings are exactly that – a private meeting of shareholders; the public does not have a right to participate and non-shareholders who attend an annual meeting do so only upon the invitation of the corporation.
There are three forms of access to a webcast:
- The meeting can be open to all, with access information (without any account requirement) sent to shareholders with proxy materials and announced publicly by the corporation by way of one or more press releases (Public Option). For example, shareholders (and others) would be directed to the corporation’s website where they would be able to access the webcast of the annual meeting.
- The corporation can send information to shareholders, with proxy materials, allowing them to create an account and which validates the identity of shareholders, so that only shareholders will (in theory) be able to access the webcast (Private Option).
- Access information can be sent to shareholders with the proxy materials, but without the requirement to create an account, so that there will be less control over access to the webcast (Semi-Public Option).
If a major purpose of an annual meeting is to communicate with the greatest number of shareholders and help raise the corporation’s profile in the investment community, then the Public Option is likely the most beneficial option for issuers as it will foster the greatest participation in the meeting.
It should be noted that the Public Option creates a risk that the webcast of the annual meeting will be viewed by “undesirable” persons or by a “basket of deplorables” (e.g., competitors, activists, etc.) who are not shareholders; in theory, these individuals will be able to ask questions to management during the question period. The Private Option (and to a lesser extent, the Semi-Public Option) limits the ability of non-shareholders to view a webcast; however, it is difficult, if not impossible, to guarantee that only shareholders will view a webcast. The Private Option, with a requirement for a shareholder to create an account with the corporation or webcast provider in order to access the webcast, will be an impediment to shareholder participation, particularly since the account information will be included in proxy materials sent at least a month before the annual meeting. To the extent possible, the corporation can give priority to shareholders during the question period, although it will be difficult to determine whether a person submitting a question by way of the webcasting platform is a shareholder.
Our random, non-scientific survey of webcast service providers regarding technological systems available for annual meetings suggests a cost of less than $6,000 for various services, including: setting up a webcast, designing a webcast page, synchronizing the webcast with PowerPoint slides, establishing a question module, and creating secure access with a global password, subject to a limit of 500 persons participating in the webcast. That compares favourably with the cost of renting a hotel conference room and travel costs for an annual meeting.
An Exclusively Electronic, “Virtual” Meeting
For those corporations which want to really push the envelope, the CBCA provides, as noted above, for an annual meeting entirely by means of a “telephonic, electronic or other communication facility” that permits all participants to communicate adequately with each other during the meeting – in short, under this legal framework, a “virtual” annual meeting can be held exclusively online, if the by-laws of the corporation so provide. In order to participate in the “virtual” meeting, it will be necessary for a shareholder to access the meeting and to register as attending.
In terms of voting at a “virtual” meeting, the CBCA provides that unless the by-laws of the corporation otherwise provide, any person participating in the meeting may vote by means of a telephonic, electronic or other communication facility that the corporation has made available. In other words, if a corporation provides for an electronic meeting, it can provide an electronic voting facility whereby, for example, shareholders will vote by clicking on an icon.
It would appear that if a corporation holds a virtual meeting, it must provide a means by which shareholders can vote. If it does not do so, a shareholder participating in the online meeting will not have a means by which to vote. Providing a voting mechanism will entail an additional cost for the corporation and technical challenges, although the software for remote, electronic voting currently exists. In short, virtual meetings will require a sophisticated technical setup and coordination to facilitate both registration and voting.
We are aware of one virtual meeting by a Canadian public company (Concordia International Corp., a company listed on the Toronto Stock Exchange). No doubt, as technology improves, as it inevitably will, virtual annual meetings of Canadian public companies will become more prevalent and eventually the norm. That will leave public companies with the vexing issue of how to provide refreshments to their “virtual” shareholders.